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Stocks Slide Over Greek Crisis

Септември 19, 2011 0 Comments Bloggies by Admin

Stocks Slide Over Greek Crisis

Stocks slid on Wall Street on Monday in a sign of increasing pessimism over the Greek debt crisis.

In Europe, market indexes fell more than 3 percent, the euro declined and the price of safe assets like German bonds rose as investors continued to fret about the possibility of a Greek default.

In New York, the Standard & Poor’s index of 500 stocks dropped 1.6 percent at the start of trading. The Dow Jones industrial average and the Nasdaq composite index also lost 1.5 percent at the opening.

The market’s attention was focused in part on the results of a conference call later Monday between Greek officials and the so-called troika of foreign creditors — the International Monetary Fund, the European Commission and the European Central Bank — as well as further meetings among senior officials in Athens struggling to close a gaping budget gap.

Meetings of European finance ministers at the end of last week and an emergency meeting of the Greek cabinet on Sunday failed to produce any specific commitments on whether the next tranche of 8 billion euros, or $11 billion, in financial aid would be released in time to help Athens meet obligations coming due in mid-October.

Amid the crisis atmosphere, Prime Minister George Papandreou of Greece canceled a visit to the United States, saying he needed to be at home to work on the rescue package.

Some analysts now fear that given the legal complications in some euro zone countries, and the apparent reluctance of Greece to push ahead on the kind of commitments on spending, wages and privatizations being sought by its partners, Greece might soon default, triggering a domino effect on other euro zone countries like Portugal, Italy or Spain.

Those fears were compounded after the party of Chancellor Angela Merkel of Germany lost ground in a regional election in Berlin on Sunday, amid voter anger over her handling of the debt crisis.

“The background noise of the Greek debt crisis resembles a continuous alarm tone,” Rainer Guntermann and Peggy Jäger, Commerzbank analysts, said in a research note. “With few tangible results coming from the finance ministers’ meeting over the weekend and still little official indication that the Greek debt swap may go through, speculation remains high and Bunds remain in demand.”

The Euro Stoxx 50 index retreated 2.3 percent. The FTSE 100 shed 1.6 percent in London.

Banking stocks were once again hard hit. Barclays, the British bank shed around 7 percent, and BNP Paribas of France was down around 2.5 percent.

The euro weakened 1 percent to $1.3663 and also declined against the yen.

There was also pessimism about the economic outlook after the secretary-general of O.P.E.C., Abdalla El-Badri, said Monday that global demand for oil was rising less than expected, Bloomberg News reported.

The price of German government bonds rose. The yield on German 10-year bonds declined seven basis points to 1.80 percent. Spanish and Italian bond prices declined even as the European Central Bank was reported to be buying those securities by traders.

Source  The New York Times


Forex Week in Review June 5-10

Май 26, 2011 0 Comments Bloggies by Admin

Forex Week in Review June 5-10


It’s get out of Dodge time. The EUR continues to falter as sovereign-debt worries remain at the

forefront. The ECB seems to be losing its grip on its own independence and is in danger

ofbecoming more of a political pawn in Europe, talking its own book. This week’s ECB

rate announcement was a zero-sum game, the bulls and bears got what they wanted,

a hint of a rate hike and Trichet mentioning a stronger dollar policy more than once. However,

there seems to be some ambiguity in his comments about when and how often they will need

to raise rates this year, remaining a cloud over the currency.

Risk aversion trading strategies continue to dominate as fear of global growth stagnation has

investors wanting to pare some of their risk winning trades. With European leaders remaining

at odds on how to provide long term support for Greece and a slow down in Chinese risk exports

this week is also weighing heavily on risk appetite. Below are some of the key highlights of the week:


Portugal’s opposition center right PSD party posted a strong result last weekend and appear to 

form a coalition with the center right CDS-PP party with a strong majority in parliament. This

bodes well for a stable government capable of pushing through key reforms and help honor the

terms of the €78bn EU/IMF bailout.In Spain, Moody’s commented on plans by the government

of the Catalan region to exceedbudget targets, noting this is credit negative for Spain.

German April factory orders surprised to the upside, rising +2.8% vs. +2.0%. The prior month’s

reported -4.0% was revised up to -2.7%. Data suggest Germany has entered the global slow

patch period with strong momentum.Swiss CPI rose +0.4%, y/y, in May from +0.3%, higher

than the consensus for a flat reading. This was still below the SNB’s own projection of a

+0.5%, y/y, rise for second quarter. Subdued inflation and an overvalued franc should deter

the SNB from sounding hawkish next weekIn the UK, both BRC retail sales and Halifax house

prices surprised to the downside. Halifax house prices fell -4.2% in May, while BRC sales

contracted +2.1%, y/y.IEA released a new ‘special’ report arguing that global consumption

of natural gas will rise 50% over the next 25-years. China’s demand will rise from about the

level of Germany to match that of the entire EU by 2035.German industrial production surprised

on the downside, falling -0.6% in April and pushed the annual growth of industrial production

lower to a still-strong +9.6%, y/y rate.Norwegian manufacturing production was also weaker,

down -1.1% in April. The soft patch was partly attributed to the long period of cold weather.

Swiss unemployment rate fell to +3.0% in May. The labor market remains very tight, with the

unemployment rate below the levels which the SNB started hiking in the last two cycles.

French and Swedish industrial production both fell, easing -0.3% and -0.7% in April respectively.

The pattern continued in the UK, with industrial production falling sharply (-1.7%) due to a large

extent of the effect of the extra bank holiday due to the royal wedding. Manufacturing production

fell -1.5%.Norway CPI rose +1.6%, y/y in May, price pressures eased slightly on a month-on-month

basis thanks to declines in transportation prices. Core-inflation moderated to +1%, y/y, from +1.3%.

As expected both the BoE and ECB kept overnight rates on hold. Trichet did manage to use the

‘strong vigilance’ language, a green light for hike in July. No comment further out the curve.

S&P’s said that France could lose its triple-A rating and without reform a downgrade was likely

by 2020.German Feri EuroRating downgraded the US to double-A from triple-A.


Fed Chairman Bernanke argued the US economy should begin to recover in the coming months.

 He emphasized that the negative effects of supply chain disruptions from the Japanese 

earthquake and the rise in gas prices will fade. His tone suggests that he is disappointed 

with the pace of US recovery and is probably far from any form of exit from easy monetary policy.

Canadian building permits plunged (-21.1%), wiping out nearly all of this years gains and has 

analysts questioning the strength of the Canadian construction industry. The trend for building

 permits and housing starts remains in negative territory and certainly does not support a rate

 hike by Governor Carney next month.In the US the number of individuals applying for weekly 

benefits remained virtually the same (+427k).Canada recorded an unexpected trade deficit in 

April (-$0.9b), on a drop in foreign sales of transportation equipment (-1.9%).

Canada created +22.3k new jobs last month and managed to reduce the unemployment

 rate to +7.4%.


Inflation index down-under show that Aussie inflation fell to +3.3%, y/y, in May from

dovish monetary policy statement. Policy makers added the caveat that they would 

‘assess carefully’ the outlook for inflation at future meetings. They softened their tone

PMIs have made them reluctant to commit either way.Australian home loans increased

Chinese export growth grew +19.4%, y/y, but was slightly weaker than the +20.4% 

expected. Imports rose +28.4%, y/y versus an expected +22%. The 12-month rolling 

trade surplus has narrowed to +$173b in May from +$179b in April. Analysts note that

Australia employment was a subdued +7.8k in May which followed a downwardly revised

Reports reduced the chance of a July RBA rate hike.RBNZ kept the policy rate unchanged

the PBoC to repatriate the CNY it raises in HK. If so, it would help encourage more mainlands

Forex Week in Review May 15-20

Май 21, 2011 0 Comments Bloggies by Admin

Forex Week in Review May 15-20

Developments with respect to Greece remain a source of stress for the markets. How will Greece find the €27bn it needs to fill its 2012 ‘funding gap’? Restructure, reprofiling? The market is trying to shape word definitions rather that reshape a quicker market solution for Greece. Before you know it we will have created a Lehman style contagion affair. Today’s Euro pullback appears to have been prompted by pre-weekend nervousness on peripheral finance issues and reports of heavy liquidation in Greek bonds that have coincided with the Spanish/Bund spread blowing out. It’s your typical ‘buy the rumor sell the fact’. It’s easy to create a lot of noise when liquidity is non existent on a Friday. Below are some of the highlights of the week:


  • IMF names John Lipsky as interim Managing Director
  • EUR headline inflation was unrevised at +2.8%, y/y, last month, but core-inflation surprised to the upside to +1.6%, y/y. Together with strong GDP numbers last week this clearly argues for further ECB tightening.
  • Rightmove data showed UK property asking prices rising +1.3% this month, to the highest level since June 2008.
  • Eurogroup chair Juncker conceded that Greek debt is currently at unsustainable levels and said that Europe would consider ‘reprofiling’ of Greek maturities, though only in the context of more spending cuts and asset sales from the Greek government.
  • UK inflation, both headline and core, surprised to the upside last month. Headline inflation accelerated to +4.5%, y/y and core CPI jumped to +3.7% from +3.2%, y/y, in March, a new record high. Much of the spike was caused by airfare prices, up +36%, y/y.
  • The letter from BoE Governor King to the UK Chancellor of the Exchequer again downplayed the above-target inflation. King continued to expect, in line with the inflation report, CPI to return back to target with the Bank rate moving in line with market interest rates.
  • German ZEW economic sentiment was on the weak side, printing at 3.1 in May, down from 7.6 in April and continues the downward trend since February. The ZEW current situation assessment increased to 91.5 from 87.1.
  • The BoE May minutes showed no change in the voting pattern despite some expectations of one less member supporting a hike. As at the last meeting, Weale and Dale voted for a +25bps hike and Sentance voted for a +50bps hike.
  • UK jobless claims printed higher than expected at +12.4k vs. the flat consensus forecasted. The claimant count unemployment increased slightly to +4.6%, but the ILO unemployment was down to +7.7% from +7.8%.
  • Strauss-Kahn resigns from IMF, France’s Lagarde possible successor.
  • FT Deutschland reported that the ECB might cease to accept Greek sovereign debt if maturities were extended. Board-member Stark was quoted making similar comments at a public forum in Athens.
  • UK retail sales surprised with a strong +1.2%, m/m read ex-gas, above the +0.8% forecast. It was the strongest increase in over a year,
  • Spain-Germany 10-year spread exceeds April wides.


  • Russia’s central bank (CBR) reported in its annual report that its previously disclosed increase in allocation to the CAD in 2010 came at the expense of the GBP, rather than lowering allocation to EUR or USD.
  • Empire State manufacturing index extended its gains for a sixth-consecutive month (11.9 vs. 20.7), but at its slowest pace this year.
  • Despite a weaker than expected TIC’s data (+24b vs. +57.7b), overseas demand remains relatively strong. China was seen as a net seller of US treasuries in March.
  • Governor Carney stated that recent Canadian economic data continues to support the BoC’s near term outlook, noting that employment and inflation numbers were modestly stronger, while auto-sales and retail spending were a touch weaker. The Bank next meets on May 31st to determine their interest rate policy.
  • US home construction fell unexpectedly in April, an indication that the troubled housing sector will remain a drag on ‘the’ recovery. Construction of homes plummeted -10.6% from March to a seasonally adjusted annual rate of +523k.
  • US building permits came in weaker, falling to +551k from a downward revision of +574k in March.
  • US manufacturing production fell for the first time in ten-months (+0.0%) last month, as Japans natural disaster disrupted the auto-industry. Industries used +76.9% of their capacity vs. a +77% reading in March. Manufacturing capacity utilization dropped -0.4% to +74.4%, ex-autos, then factory production gained +0.2% in April.
  • In the FOMC minutes there was little different to what Bernanke commented in his post press appearance. The FOMC meeting showed that monetary policy tightening is still far down the line. Concerns about inflation were present, but with the dominating view still being rising energy costs are ‘transitory’.
  • Canadian wholesale trade was weighed down by lower import prices (+0.1% vs. +1.2%) which provided for a disappointing report.
  • US jobless claims fell for a second consecutive week (-29k to +409k), a tentative sign that the downward trend may have recommenced. The decline is being attributed to the ‘shake out of weather related problems, and supply shortages in Japan
  • US home resale’s unexpectedly declined last month on widespread weakness (+5.05m vs. +5.20m), despite a downward revision to the previous month and the second contraction in three-months. What is also disturbing is that the month’s supply moved back above 9 (highest print in six months).
  • For a second consecutive month the Philly Fed manufacturing index plummeted, falling from +18.5 to +3.9 in May.
  • Canadian retail sales disappointed -0.1% and Canadian inflation numbers came in softer with CPI +0.3% vs. +1.1%


  • Japan core-machinery orders rose +2.9% in March, well above consensus expectations for an earthquake-induced 10% decline. This marks the third consecutive month of increased three-month momentum, but seems unlikely to fully reflect the impact from the mid-March earthquake.
  • Australia reported that the number of home loans contracted -1.5%, m/m, in March, vs. expectation of a +2.0% rebound, to below +45k (weakest number in ten years). However, investment lending rose +2.1%, almost offsetting the -2.3%, m/m, contraction in February.
  • RBA May minutes said that an appreciating AUD was helping to contain inflation pressures. However, the minutes also noted that higher interest rates may be required at some point if inflation was to remain consistent with medium-term goals.
  • Australia reported weaker than expected wage cost growth in Q1 of +0.8%, q/q, vs. +1.1% expected.
  • New Zealand input and output PPI rose to +2.2% and +1.7%, q/q, respectively. Consumer confidence rose to 103.2 from 101.4 in March, arresting the slide in confidence year-to-date.
  • Japan Q1 GDP fell by -0.9%, q/q, weaker than the -0.5% consensus. The decline was even larger when taking into account that Q4 GDP growth was revised down to -0.8% from -0.3%, q/q, previously. This would suggest an increasing divergence in BoJ and other G10 monetary policy.
  • New Zealand reported a larger budget surplus projection than the previous forecast easing concerns of sovereign rating downgrades.
  • BoJ left their monetary policy and its asset purchase plan unchanged. Stable BoJ policy leaves the yen vulnerable as US front-end rates rise.

To Reprofile or Restructure the EURO?

Май 17, 2011 1 Comments Bloggies by Admin

What’s in a word? A lot apparently. Even European policy makers are finding it confusing this morning. It’s ‘re-profiling’ not ‘restructuring’ of Greek debt supposedly. This is understood to involve exchanging shorter term debt for longer term debt without incurring losses to principle or coupon. Why would investors volunteer to exchange their holdings? The simple reason that they want to eventually get paid, this ‘new’ collateral would be backed by a trust.

EU finance ministers yesterday said that there was no such thing as ‘soft restructuring’ and that re-profiling was different from restructuring. It seems that someone forgot to tell the Commission President, Juncker. This morning on the wires he has been encouraging soft restructuring. This market is as confused as the people who are implementing the changes.

The US$ is mixed in the O/N trading session. Currently, it is lower against 10 of the 16 most actively traded currencies in a ‘subdued’ morning session.

US data yesterday was ‘wishy-washy’, leading to most dealers to sit on their hands and watch the screens move on little volume waiting to digest any Euro periphery news.

The Empire State manufacturing index happened to extend they gains for a sixth consecutive month (11.9 vs. 20.7), but at its slowest pace this year. However, one month does not make a trend, especially since the regional reporting has been widely volatile thus far this year. Digging deeper, out of the nine subcategories, two happened to post weaker results, new-orders (-5.15 to 17.19) and shipments (-2.54 to 25.75). These were offset by improvements in the average work week and the unfilled orders subcategories. About pricing, respondents ‘paid for’ inputs rose on average by +8.1%, y/y, largely due to higher prices of commodities. On the flip side, they reported that selling prices rose +1.9%, y/y, down from +2.9% reported last year.  However, they expect a +3.6% price increase over the next twelve months.

Despite a weaker than expected TIC’s data (+24b vs. +57.7b), overseas demand remains relatively strong. In the report, China was seen as a net seller of US treasuries in March. However, investors should be aware that of the country specific data ‘does not necessarily speak to the domicile of the specific owner’. For instance, if China were to buy product through London, then that centre is credited with that purchase, making some of the reported data slightly distorting.
The USD is lower against the EUR +0.44%, GBP +0.66%, and higher against CHF -0.07% and JPY -1.08%. The commodity currencies are stronger this morning, CAD +0.28% and AUD +0.40%.

The pressures on commodities has been undermining the loonies’ progress. Last week, the currency dropped for a second-straight week for the first time in four-months, as crude prices continued their slide, one week after plummeting the most since December 2008. Not helping the currency is the market waiting for Canadian inflation data later this week before committing to larger CAD positions. To date, risk sentiment has been stung over Euro-zone debt restructuring and on doubts about the pace of global growth.

Yesterday, Governor Carney stated that recent Canadian economic data continues to support the BoC’s near term outlook, noting that employment and inflation numbers were modestly stronger, while auto sales and retail spending were a touch weaker. The Bank next meets on May 31st to determine their interest rate policy.

Already this month, the CAD has retreated from a three-year high as commodities plunged on concerns for Greece’s continued Euro membership, pushing investors to seek temporary sanctuary in the world’s go to safe heaven currency, the dollar. The Euro-finance meetings continues to set the appetite for risk (0.9731).

The Australian dollar rose in the O/N session, snapping a four-day drop against the greenback, after the RBA said it may need to raise borrowing costs ‘at some point’ outweighing concern interest rates won’t be increased as the currency’s strength curbs price pressures. The currency is expected to track the ‘nation’s terms of trade and stay persistently high for some time’.

The RBA minutes released last night look relatively upbeat for the economy, for expectations and for potential rate hike. ‘If economic conditions continued to evolve as expected, higher interest rates were likely to be required at some point if inflation was to remain consistent with the medium-term target’. ‘Members viewed the current mildly restrictive stance of monetary policy as remaining appropriate’.

Aussie yields are still the highest in the G10 and do look attractive. The expected mix of trade surpluses and rising capital inflows should provide support for the currency on these pullbacks for the time being (1.0586).

Crude is little changed in the O/N session ($97.44 +4c). Oil prices remain vulnerable on worries about Euro-zone debt and on global economic growth. The market fears that China may need to raise interest rates further to rein in ‘stubbornly high inflation’. Last week the PBoC raised banks’ reserve requirements for a fifth time this year to restrain inflation. There is always a concern that investors may doubt US credit worthiness, even more so now that Obama has highlighted the potential fallout if the US debt limit is not dealt with sooner.

A build up of crude inventories is also weighing on prices. Last week’s crude stocks rose +3.78m, much higher than the +1.4m barrels build up expected. Not to be left behind, gas inventories rose +1.28m barrels versus a forecast for a-200k barrel drop. This much larger build has grown because of gas demand being down year-over-year as higher prices at the pump cut into demand ahead of the US peak driving season. Fundamentally, investors should expect further slippage of prices to generate stronger demand and reduce inventories from current levels.

Higher oil prices have been denting demand growth and it’s this drop-off, combined with the overall retreat in commodities, and a rising dollar that has forced this drastic easing of oil prices this month. The IEA indicated that they have cut global demand again, as this year’s price rally begins to weigh on consumption. They have reduced its estimates for world consumption by-190k barrels a day.

The dollars rebound this month is eroding the allure of gold for alternative investment purposes. With global equities under pressure from China’s inflationary stance, is bearish for commodities as investors are pressurized to taking profit with gold to compensate for losses in other assets.

Investors continue to unwind that long-commodity, short-dollar trade. Until now, the uncertain macro-economic and political environment has been encouraging investors to want to own their piece of the gold. Unofficially and specifically this year, the yellow metal has become the currency of choice because of the heightened currency volatility and on the back of a questionable dollar value.

The metals bull-run is far from over with speculators continuing to look to buy gold on these deeper pullbacks. Interestingly, the sale of gold coins this month remains on track for the best month in a year amid the worst commodities rout in three-years, which would suggest that bullion’s longest ‘bull market’ has further to run. However, with inflation expectations dipping this month has the weaker ‘long’s’ remaining on the back foot and second guessing their outright positions ($1,495 +$5.00c).

The Nikkei closed at 9,567 up+9. The DAX index in Europe was at 7,344 down-43; the FTSE (UK) currently is 5,922 down-2. The early call for the open of key US indices is higher. The US 10-year rose 3bp yesterday (3.16%) and is little changed in the O/N session.

Treasury yields continue to trade on top of this year’s lows amid investors concerns about the strength of the US recovery. Yesterday, New York manufacturing data expanded at a slower pace than anticipated this month as the cost of raw materials surged. Supporting higher prices was Atlanta’s Fed Lockhart stating that it was ‘too early to consider an exit from stimuli’. Treasuries are outperforming bunds as Merkel’s determination to save the EURO unnerve debt holders.

Fundamentally, US yields remain historically low as the economy is finding it difficult to generate enough forward momentum to suggest rising prices will ‘be passed through the underlying rate of inflation’. Because of the US mixed data and the Euro-political situation, investors continue to find value on these pull backs.

Source Oanda forexblog


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